Johnson & Johnson (J&J; New Brunswick, New Jersey) turned the med-tech landscape on its ear Tuesday, as it said it plans to cut as many as 8,000 jobs across the world and to end its recently announced collaboration with Pfizer (New York) to develop a treatment for Alzheimer's disease.
The company said that this move was an effort to cuts costs and would garner pre-tax cost savings of $1.4-$1.7 billion when fully implemented in 2011, with $800-$900 million expected to be achieved in 2010.
The associated savings will provide additional resources to invest in new growth platforms; ensure the successful launch of its many new products and continued growth of its core businesses; and provide flexibility to adjust to the changed and evolving global environment.
"We're trying to make sure that we've really set [J&J] up for the future," said William Weldon chairman/CEO of J&J during a Tuesday conference call to investors. "We're trying to make sure that we have the resources to invest in the product opportunities we have going forward as well as the ability to continue to invest in current opportunities."
The cuts will happen through reduction of the following business segments: medical devices, pharmaceutical, and consumer products.
There will also be cuts to the home office and there will be a reduction of the "layers of management."
The company said that it expects to take a $1.3 billion charge in the fourth quarter, related mostly to severance payments. The company reaffirmed its 2009 earnings outlook. It also said that, excluding special items such as restructuring charges, it expects to earn between $4.54 and $4.59 per share this year.
Position eliminations will form only one component of the savings. "These types of changes are difficult under any circumstances, and will have a very personal impact on people who have been dedicated to the mission of Johnson & Johnson," Weldon said. "We recognize their contributions to the achievements of our business, and are committed to treating them fairly and with respect throughout this process."
Weldon cited increasing costs of bringing products to market and an ailing economy as primary culprits for the restructuring bid.
"The expenses to bring a product to market, whether it's in pharmaceuticals or in [medical devices], are so much higher today than they were a decade ago. And the risk is also so much greater," Weldon said. "In the case of a 510(k) application, you're going to need to do even more studies. You're going to need patients. It's going to be much different than it has ever been. We want to make sure that when we go forward we have the resources to invest."
He denied that the upcoming healthcare reform initiative was a driving force behind the company's most recent restructuring plan.
"There are so many variables and unknowns about healthcare reform, that this really isn't a healthcare reform issue at all," Weldon said. "This isn't aimed at all at addressing healthcare reform."
The company said initiatives would be implemented at the operating company levels to be certain the businesses can meet the needs of the customers they serve on a day-to-day basis. The company estimates that position eliminations will be in a range of 6% to 7% of its global workforce, subject to any consultation procedures on these plans in countries where required.
This is but the latest round of trimming that the company has done in recent months. In August, J&J eliminated its comprehensive care business, one of three business units created in a January 2008 restructuring meant to boost sales (Medical Device Daily, Aug. 28, 2009) and late last year J&J trimmed its workforce when it cut payrolls by 3% to 4%.
Omar Ford, 404-262-5546;